The options market bets on positive earnings reports, with Taiwan Semiconductor's stock price bullish sentiment rising to a six-month high

According to Zhitong Finance APP, as market optimism grows regarding the upcoming financial report potentially easing concerns, options traders are betting that Taiwan Semiconductor (TSM.US) shares will continue to rise. Data shows that the cost of hedging against a decline in Taiwan Semiconductor's stock price has fallen to its lowest level since January, compared to bullish bets.

Taiwan Semiconductor's quarterly revenue growth reported last week exceeded expectations. Analysts currently expect that Taiwan Semiconductor will raise its full-year guidance when it releases detailed financial results on Thursday, and may hint at further price increases for its products in the future.

Shares of Taiwan Semiconductor listed in Taiwan have risen 44% since the low following the U.S. announcement of increased tariffs in April, partly following the rebound in the stock price of its key customer, NVIDIA (NVDA.US). During the same period, its American Depositary Receipts (ADR) rose nearly 70%, reaching an all-time high, reflecting the increasing importance of Taiwan Semiconductor's critical role in the semiconductor industry to global investors.

The renewed interest in artificial intelligence (AI) themes is boosting Taiwan Semiconductor's stock price. Earlier this year, concerns over its high-cost investments in the U.S. and worries that DeepSeek might reduce demand for high-end chips put pressure on Taiwan Semiconductor's stock price. High-end chips are Taiwan Semiconductor's dominant area.

Kevin Wang, a director at Mizuho Securities, stated, "Although there are still some concerns, such as tariff issues or profit margin uncertainties, overall, I believe Taiwan Semiconductor will start to outperform the market in the second half of the year. It will continue to raise prices for advanced processes, as it has no competitors."

Taiwan Semiconductor previously set a revenue growth target of "around 20% median" for 2025, but considering the strong AI spending, bullish analysts believe this target is too conservative. NVIDIA recently became the first company in history to surpass a market capitalization of $4 trillion, mainly due to its largest customer's commitment to increase capital expenditures in the coming year.

Morgan Stanley analyst Charlie Chan and others wrote in a report this week: "We expect Taiwan Semiconductor to raise its 2025 revenue guidance to a year-on-year growth range of high 20% in its financial report, as AI demand remains in short supply. Given the market's low expectations, we recommend increasing positions before the financial report is released on July 17."

Sell-side institutions generally maintain a bullish stance, with at least six brokerages (including HSBC Holdings and Deutsche Bank) raising their target prices after Taiwan Semiconductor released sales data. Data shows that analysts expect Taiwan Semiconductor's stock price to rise an average of 11% over the next year compared to Wednesday's closing price.

Of course, there are some adverse factors, such as the recent strengthening of the New Taiwan Dollar putting pressure on the company's profit margins. Additionally, non-AI related businesses (such as consumer electronics like smartphones and personal computers) remain weak, while investments in low-margin factories in the U.S. continue to increase However, the ongoing enthusiasm of global companies for AI investment, as well as TSMC's continued recognition among global investors, are both positive factors for its future. Another potential positive factor that could boost TSMC's stock is that the foreign ownership ratio is still far below the high levels of 2024. Phelix Lee, an analyst at Morningstar, stated, "The market is still very fond of AI-related stocks." He added that although foreign exchange rates may lead to a decline of 2 to 3 percentage points in TSMC's gross margin for the June quarter, given its market dominance, TSMC should be able to offset this impact through future price increases